Alibaba Takes Control of Grocery Business

(Noted News) — Alibaba Group [BABA] announced a $3.6 billion investment in Sun Art Retail Group Limited for a 72% controlling stake in the Chinese big-box supermarket chain. 

Alibaba had initially invested in Sun Art in 2017, taking 36% control of the company with anticipations of a further digitized retail industry. The investment went well, and this week’s announcement was a double-down; Alibaba said in its announcement that “over the past three years, Sun Art has made significant progress in the digital transformation under a fast-changing market environment by leveraging resources and technology from the Alibaba ecosystem, to capitalize on the growth opportunities in China’s hypermarket and supermarket space.”

So far, all of Sun Art’s 484 locations have been integrated with Alibaba’s Taoxianda and Tmall Supermarket platforms for grocery shopping, plus its delivery app and logistics app Cainiao. This hyper-digitization of the grocery stores has allowed Alibaba to not only provide quicker deliveries and better product selection, but also to gather data on their customers to use for a variety of reasons.

Alibaba’s initiatives echo those of its rival JD, who has similar coordination with the supermarket chains Yongui and Walmart. It’s also reminiscent of Amazon’s integration with Whole Foods Market.

Sun Art generally targets the mass market with standard, affordable groceries. But to capture the higher end of the market, Alibaba also started Freshippo in 2016. Also known as “Hema” in mandarin Chinese, Freshippo sells high-end products like live crabs, lobsters, and rarer imported products.

Alibaba opened the first Freshippo in Shanghai and then went on to open 200 more in China’s biggest cities. In September, Freshippo opened its first members-only location in Shanghai, rivaling the business model of Costco or Sam’s Club. According to Chinese consumers’ reaction to the opening of the first Costco in China, this business model should turn out very lucrative for Alibaba.

Hema also launched its own private brand called Hema MAX, which sells a wide range of standard products like nuts, yogurt, and rice. 40% of the products sold in Freshippo are under their own exclusive labels like Hema MAX, and only 10% are imported from overseas factories.

Customers who live within 10 miles of the store can have their groceries delivered within half a day, and customers within 2 miles can have their groceries delivered sometimes within half an hour. 

These investments are part of what Alibaba CEO Jack Ma calls the “Five New” strategy that focuses on rearranging the company to accommodate changes in the five main branches of commerce.

“Commerce as we know it is changing in front of our eyes. ‘E-commerce’ is rapidly evolving into ‘New Retail’. The boundary between offline and online commerce disappears as we focus on fulfilling the personalized needs of each customer. In China, our New Retail initiatives are taking shape as the starting point to our Five New strategy—comprised of New Retail, New Finance, New Manufacturing, New Technology, and New Energy. We have already geared our organizational structure toward the support of our Five New strategy for the coming decades.

The move into groceries is clearly part of the “New Retail” strategy, while things like Alibaba’s Ant Group focus on the “New Finance” side of things. Ant Group is currently seeking approval to list on Chinese public stock exchanges. 

On the news of the Alibaba acquisition, Sun Art’s share price jumped as much as 30%, while Alibaba’s share price nudged a little over 1%, signaling market confidence in the Chinese giant’s initiatives. 

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